Correlation Between American Equity and Principal Financial
Can any of the company-specific risk be diversified away by investing in both American Equity and Principal Financial at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining American Equity and Principal Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Equity Investment and Principal Financial Group, you can compare the effects of market volatilities on American Equity and Principal Financial and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in American Equity with a short position of Principal Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Equity and Principal Financial.
Diversification Opportunities for American Equity and Principal Financial
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Principal is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding American Equity Investment and Principal Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Financial and American Equity is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on American Equity Investment are associated (or correlated) with Principal Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Financial has no effect on the direction of American Equity i.e., American Equity and Principal Financial go up and down completely randomly.
Pair Corralation between American Equity and Principal Financial
Considering the 90-day investment horizon American Equity Investment is expected to under-perform the Principal Financial. But the stock apears to be less risky and, when comparing its historical volatility, American Equity Investment is 3.49 times less risky than Principal Financial. The stock trades about 0.0 of its potential returns per unit of risk. The Principal Financial Group is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 7,712 in Principal Financial Group on January 17, 2024 and sell it today you would earn a total of 181.00 from holding Principal Financial Group or generate 2.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Equity Investment vs. Principal Financial Group
Performance |
| Timeline |
| American Equity Inve |
| Principal Financial |
American Equity and Principal Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Equity and Principal Financial
The main advantage of trading using opposite American Equity and Principal Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Equity position performs unexpectedly, Principal Financial can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Principal Financial will offset losses from the drop in Principal Financial's long position.The idea behind American Equity Investment and Principal Financial Group pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Principal Financial vs. State Street Corp | Principal Financial vs. Bank of New | Principal Financial vs. SEI Investments | Principal Financial vs. Affiliated Managers Group |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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